America’s manufacturing sector remained entrenched in recession in September, with the latest data from both the Institute for Supply Management (ISM) and S&P Global revealing a steeper decline in factory employment, casting a shadow over the already weakening labor market.
Employment cuts accelerated in the manufacturing sector last month, with the ISM’s Employment Index dropping two points, to 43.9 percent, as companies surveyed by ISM indicating that they were looking to “right-size” workforces to align with weaker demand, according to data released on Oct. 1.
The ISM’s manufacturing gauge remained unchanged at 47.2 percent last month, consistent with August, reflecting the sector’s prolonged contraction, because readings below 50 indicate recession. This marks the sixth consecutive month of decline in factory activity, and the twenty-second in the last 23 months, as the sector grapples with weaker demand, shrinking backlogs, and falling new orders.
“Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory,” Timothy Fiore, chair of the ISM’s business survey committee, said in a statement.
Similarly, the S&P Global Manufacturing PMI, released on Oct. 1, highlighted a sharper fall in factory staffing levels, marking the steepest decline in 14 years, outside the pandemic period.
S&P Global’s headline manufacturing index dropped to 47.3 in September, down from 47.9 in August, marking a deeper contraction in the sector. New orders and output both fell at sharper rates in September, amid demand weakness and uncertainty around the November election.
“The September PMI survey brings a whole slew of disappointing economic indicators regarding the health of the U.S. economy,“ Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. ”Factories reported the largest monthly drop in production for 15 months in response to a slump in new orders, in turn driving further reductions in employment and input buying as producers scaled back operating capacity.”
On a somewhat positive note, companies surveyed by S&P Global generally expected that at least part of the demand drop was likely to be temporary, attributing some of the pullbacks in spending, investment, and inventory buildup to uncertainty around the presidential election.
“Hence, despite the deterioration in the current business situation, business expectations about the year ahead have in fact improved,” Williamson said.
Nevertheless, this slight optimism about the future might be wishful thinking, because the current outlook for the manufacturing sector remains bleak. Both the ISM and S&P Global reports paint a picture of an industry grappling with various challenges. New orders, a key driver of production, for example, continued to decline. The ISM’s new order index, while improving slightly to 46.1 percent from August’s 44.6 percent, remained firmly in contraction territory, highlighting ongoing weakness in demand both domestically and internationally.
S&P Global’s report echoed similar concerns, noting that export orders in particular saw a sharper decline in September, with ongoing geopolitical tensions and weakening demand in key markets like Europe contributing to a fourth consecutive month of contraction in export orders. The ISM’s new export orders index fell even further, dropping 3.3 percentage points, to 45.3 percent.
The continued contraction in the sector has also affected pricing dynamics. For the first time this year, the ISM’s price index moved into contraction, falling to 48.3 percent, reflecting decreasing prices for key materials like steel, aluminum, and oil. Similarly, S&P Global reported that input cost inflation had eased, but companies were still raising output prices at the fastest pace since April, seeking to offset increased shipping costs and other operational expenses.
The deteriorating conditions in the manufacturing sector followed broader labor market trends showing signs of cooling.
According to the latest Job Openings and Labor Turnover Survey (JOLTS) report, released on Oct. 1, the job quits rate fell to 1.9 percent in August, the lowest level since June 2020. This decline suggests that workers are becoming increasingly hesitant to leave their jobs, a sign of weakening confidence in their ability to find better opportunities in a softening labor market.
“The quits rate fell to the lowest since the pandemic, and the decline is consistent with other data showing workers view the labor market less favorably,” Nancy Vanden Houten, lead economist at Oxford Economics, wrote in a note to clients on Oct. 1.
On a brighter note, the JOLTS report also showed that the number of job openings rose from 7.71 million in July to 8.04 million in August, a sign that employers in certain sectors, such as construction and government, are still actively seeking to fill positions despite the overall economic slowdown.
